Einstein Noah rebounds, posts income of $6.9 million

by Jeff Gelski
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LAKEWOOD, COLO. — Einstein Noah Restaurant Group recorded net income of $6,914,000, equal to 43c per share on the common stock, in the second quarter ended July 1, up sharply from a loss of $250,000 in the previous year’s second quarter. The company said operational efficiencies, reduction in interest expense and a second-quarter 2007 write off of debt issuance costs led to the net income.

Net sales in the second quarter totaled $105,414,000, up 4% from $101,055,000 in the same period a year ago. Comparable store sales growth was 1% despite being affected negatively 0.6% by a reduction in hours of operation at certain restaurants.

"While our decision to reduce hours affected comparable store sales, the store-level margin improvement outweighed the impact of lower sales," said Rick Dutkiewicz, chief financial officer of Einstein Noah, when second-quarter results were given Aug. 6. "Essentially, we carefully analyzed our restaurants to optimize their store hours based on profitability after 3 p.m. On a prospective basis, we have optimized store hours further and believe this will additionally reduce comparable store sales by approximately 0.6%."

Einstein Noah opened eight license locations and three company-owned restaurants in the second quarter. Two Einstein Bros. Bagels development agreements call for restaurants to open in Texas, and the company entered into a development agreement to franchise a new Manhattan Bagel location in Charlotte, N.C.

"Despite the current economic challenges, we are committed to strengthening the brand on all three fronts — franchising, licensing and company-owned locations," said Paul Murphy, chief executive officer and president of Einstein Noah. "The margin improvement we experienced in the second quarter demonstrates the effectiveness of our strategy.

"As we begin to set the stage for 2009, we have taken a modest position on locking in some of our commodities costs for next year. We have an agreement in process to secure our turkey supply into the fourth quarter of 2009 at about the same 2008 cost, and we have locked in 50% of our cheese costs for 2009 below the cost of cheese in 2008."

For the first six months ended July 1, Einstein Noah posted net income of $10,756,000, or 68c per share, up from $881 million, or 8c per share, in the same period a year ago. Net sales were $208,678,000, up 6% from $197,310,000.

Einstein Noah Restaurant Group operates locations primarily under the Einstein Bros. Bagels and Noah’s New York Bagels brands and primarily franchises locations under the Manhattan Bagel brand. The company’s retail system consists of more than 600 restaurants in 35 states and the District of Columbia.

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